Help to Buy: Equity Loan scheme – progress review

The Help to Buy Scheme1 has increased home ownership and housing supply. However, many of those using the scheme would have been able to buy a home anyway, according to today’s report by the National Audit Office (NAO).

The scheme was introduced by, what is now, the Ministry of Housing, Communities & Local Government (the Department) in April 2013 to increase both home ownership and boost housing supply, by helping people to get mortgages and thereby, create more new-build homes.

However, as the scheme is demand led, and all eligible applicants are given equity loans, the Department did not set itself targets for either of these measures. The scheme is the Department’s largest housing initiative by value.

Homes England delivers the scheme. By December 2018, it had made around 211,000 loans amounting to £11.7 billion. Between the start of the scheme in April 2013 and September 2018, 38% of all new-build property sales have been supported by loans through the scheme, which is around 4% of all housing purchases during this time.

According to the Department’s own independent research, 37% of households would not have been able to buy any property without the scheme. The NAO estimates this has resulted in around 78,000 additional sales of new-build homes as of December 2018. Around 81% of all buyers supported by the scheme have been first-time buyers.

The Department’s independent research also found that around three-fifths of buyers could have bought a property without the support of Help to Buy, but not necessarily a property they wanted. Almost a third of all buyers (65,000 households) could have purchased a property they wanted without the scheme.

Around 4% of the 211,000 buyers who had used the scheme by December 2018 had household incomes over £100,000. In the Department’s opinion these transactions are an acceptable consequence of designing the scheme to be widely available.

Take-up has been low in less affordable areas where the ratio of house prices to average earnings is higher. To address the initial low London take-up, the government increased the maximum loan in the region to 40% of the property value. This improved London take-up from 12%, between the start of the scheme and December 2015, to 26% of new-build sales, between January 2016 and September 2018, but it is still lower than the rest of England (46% of new-build sales over the same period).

The NAO’s analysis has found that buyers who have used the scheme have paid less than 1% more than they might have paid for a similar new-build property bought without the support of the scheme. The NAO’s estimate of the premium is significantly less than other estimates, which range between 5% and 20%, as these do not compare similar properties and so do not accurately assess any premium paid by those using the scheme. However, new-build properties typically cost around 15-20% more than an equivalent ‘second-hand’ property (termed the new-build premium) and some buyers who want to sell their property soon after they purchase it might find they are in negative equity.

The scheme has supported five of the largest developers in England to increase the overall number of properties they sell year on year, thereby contributing to increases in their annual profits, which have all increased since the scheme’s start. These five developers sold between 36% and 48% of their properties with the support of the scheme in 2018.

By 2023, the net amount loaned through the scheme is forecast to peak at around £25 billion in cash terms. The Department expects to recover its investment by 2031-32 and make a positive return overall and redemptions are running ahead of expectations. However, the NAO report highlights that the Department’s investment is exposed to significant market risk as it is sensitive to house-price changes and the timing of buyers repaying loans. There is also an opportunity cost in tying up this money in the scheme for a considerable period, rendering it unavailable for other housing schemes or departmental priorities.

There is less need for the scheme now that higher loan-to-value mortgages are more available, and the Department plans to end the scheme in 2023. Nevertheless, there is concern across the housing sector that the end of the scheme will result in a drop in new developments and sales. In the meantime, there will be a new scheme from April 2021 restricted to first-time buyers with lower regional limits on the maximum purchase price.

The NAO recommends that since the Department has not
undertaken a detailed assessment of the impact of the scheme on the wider
housing market, it should expand the scope of its next evaluation to examine
such wider effects, including a potential influence on the new-build premium,
and identify lessons learned for any future interventions.

“Help to Buy has increased home ownership and housing supply, particularly for first-time buyers. However, a proportion of participants could have afforded to buy a home without the government’s help. The scheme has also exposed the government to significant market risk if property values fall, as well as tying up a significant public financial capacity.“The government’s greatest challenge now is to wean the property market off the scheme with as little impact as possible on its ambition of creating 300,000 homes a year from the mid-2020s. Until we can observe its longer-term effects on the property market and whether the Department has recovered its substantial investment, we cannot say whether the scheme has delivered value for money.”

Gareth Davies, the head of the NAO

Notes for Editors

211,000 equity loans made to buyers in England by December 2018 £11.7bn loaned in total in England by December 2018 14.5% is the Ministry of Housing, Communities and Local Government’s (the Department's) estimate of the increase in new-build housing supply in England as a result of the scheme 352,000 is the Department’s forecast for the number of home purchases to be supported by Help to Buy equity loans in England by March 2021 37% is the proportion of buyers in England who said they could not have bought without the support of the scheme (measured between June 2015 and March 2017) 31% is the proportion of buyers in England who said they could have bought a property they wanted without the support of the scheme (measured between June 2015 and March 2017) 38% is the proportion of new-build properties which have been sold with the scheme in England between April 2013 and September 2018 4% is the proportion of all property sales which have been sold with the scheme in England between April 2013 and September 2018 81% is the proportion of Help to Buy loans provided to first-time buyers in England, at December 2018 5% is the proportion of buyers in arrears who bought in the first eleven months of the scheme in England, at February 2019 2031-32 is the year by which the Department estimates it will have recouped its investments in full

Through the scheme, home buyers receive an equity loan of up to 20% (40% in London since February 2016) of the market value of an eligible new-build property, interest free for five years. The value of the loan changes in proportion to changes in the property’s value. The loan must be paid back in full on sale of the property, within 25 years, or in line with the buyer's main mortgage if this is extended beyond 25 years. The scheme enables buyers to purchase a new-build property with a mortgage of 75% of the value of the property. The scheme, which is not means-tested, is open to both first-time buyers and those who have owned a property previously. Buyers can purchase properties valued up to £600,000.

The Chancellor announced in the October 2018 Budget that, from April 2021, the new scheme would be restricted to first-time buyers. Outside of London, lower regional limits on the maximum purchase price will restrict the scheme to buyers buying cheaper properties, who are likely to be people on lower incomes. The Department also intends these changes to reduce overall demand for the scheme in its final two years, preparing the housing sector for its end.

Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.

The National Audit Office (NAO) helps Parliament hold government to account for the way it spends public money. It is independent of government and the civil service. The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether government is delivering value for money on behalf of the public, concluding on whether resources have been used efficiently, effectively and with economy. The NAO identifies ways that government can make better use of public money to improve people's lives. It measures this impact annually. In 2018 the NAO's work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £539 million.